Depletable resources deplete—which would seem to mean less and less for the future with ongoing production. But the actual statistics of oil, natural gas, and coal show the opposite. The more that is extracted, the more there is to extract. This is not the biblical story of the fishes and loaves. It is the result of resourceship, or entrepreneurship applied to resources in free economies.
That is the finding of IER’s 2024 North American Energy Inventory: “Since 2005, oil production in the U.S. has increased by 149 percent and natural gas production has more than doubled.”
Looking ahead: “The U.S. now has 227 years of oil supply, 130 years of natural gas supply, and 485 years of coal supply.” And when these time horizons are reached, expect high, even higher, reserve and resource figures given free-market supply and demand, or the liberty to locate, extract, and consume resources.
Resourceship
Resources come from the mind, not the ground. Entrepreneurship is open-ended with each advance in knowledge expanding the frontier of new discovery. “Entrepreneurial alertness [is] in principle inexhaustible,” Israel Kirzner has stated, wholly rejecting the notion of a “potential stock of entrepreneurial alertness in a society as some quantity ‘available to be used by society’.” In the vernacular of the oil industry, in other words, there are no proved, probable, or speculative quantities for entrepreneurship.
But incentives must be right for human ingenuity to turn the neutral stuff of the earth into valuable resources. There must be the institutions of private property, voluntary exchange, and the rule of law. And there must be a culture of achievement.
Free economies are marked by coordinated, expanding markets and growing wealth. Increasing savings and investment, and retained earnings from prior investment, provide the capital to mine oil, gas, coal in accordance to market demand. Such capital in free market settings is not a depleting but an expanding resource also.
The IER study notes that “massive increases” in domestic energy resources resulted from “a combination of hydraulic fracturing, precision drilling, and private ownership of the subsurface in key parts of the United States.” But the boom has been artificially held back on federal lands relative to privately-owned areas where incentives are more properly aligned.
Underdevelopment characterizes Mexico, the laggard of North America. Oil, gas, and coal are owned by the state, as well as transported, refined, and marketed by the government monopoly. The people are poor, but a political elite enjoys the limited national wealth.
Peak Oil Not
Just three years ago, the question of a physical limit to production was posed in a piece published by the Yale School of the Environment, “Amid Troubles for Fossil Fuels, Has the Era of ‘Peak Oil’ Arrived? Author Fred Pearce wrote, “with a recent string of setbacks for big oil companies and the rapid advance of electric vehicles, some now say that ‘peak oil’ has arrived.”
The Pandemic did cut travel and thus the demand for oil, but just three years later, the news is no peak supply, no peak demand. Once again, predictions of stagnation and decline were premature, as has been the case with petroleum since the 1860s. The same has long been predicted with Peak Natural Gas. And Peak Coal.
The fallacy of fixity/depletion rests on a physical, finite view of the world. But the whole is not definable in quantitative terms, leaving the business/economic question of what, when, where, how much. Real-world supply and demand is controlling.
Conclusion
“The distinction between renewable and non-renewable resources is tenuous and perhaps in the last analysis untenable,” concluded petroleum economist M. A. Adelman. “If resources are not fixed but created,” noted institutional economist Thomas DeGregori, “then the nature of the scarcity problem changes dramatically.” He explained the “liberating” theory of resourceship:
Technology as ideas and as the creator of resources … provides a conceptual basis for understanding the fact that the resource base of civilization has expanded, not contracted, with use. It gives us the kind of operational understanding necessary to frame the policies to sustain this resource-creating process. It provides a reasonable basis for optimism that the human endeavor can continue and can expand.
Economics is not the dismal science. Economics, and political economy, explain how a complex economy emerges and thrives without the need for central government to direct the production, consumption, or conservation of resources. Relatively free U.S. energy markets, in this regard, match theory to evidence to instruct government: first, do not harm. Let growth and prosperity reign.
